Market increases projection for economic growth in 2023

For next year, the expectation for the Gross Domestic Product (GDP, sum of goods and services produced in the country) is growth of 1.41%. In 2025 and 2026, the financial market projects GDP growth of 1.7% and 1.8%, respectively.

The forecast for the Extended National Consumer Price Index (IPCA), considered the country’s official inflation, also rose, from 6.01% to 6.04% this year. For 2024, the inflation estimate was 4.18%. For 2025 and 2026, forecasts are 4% for both years.

The estimate for this year is above the ceiling of the inflation target that must be pursued by the Central Bank. Defined by the National Monetary Council (CMN), the target is 3.25% for 2023, with a tolerance interval of 1.5 percentage points up or down. That is, the lower limit is 1.75% and the upper limit 4.75%. According to the BC, the chance of official inflation exceeding the target ceiling in 2023 is 83%.

The market’s projection for 2024 inflation is also above the center of the expected target, set at 3%, but still within the tolerance range of 1.5 percentage points.

In March, the inflation decelerated for all income brackets. Even so, driven by the increase in fuel prices, the IPCA stood at 0.71%, according to the Brazilian Institute of Geography and Statistics (IBGE). The result is lower than the February rate of 0.84%. In 12 months, the indicator accumulates 4.65%, below 5% for the first time in two years.

Interest rate

To reach the inflation target, the Central Bank uses the basic interest rate, the Selic, as its main instrument, set at 13.75% per year by the Monetary Policy Committee (Copom). The rate has been at this level since August last year, and is the highest level since January 2017, when it was also at this level.

For the financial market, the expectation is that the Selic will end 2023 at 12.5% ​​per year. By the end of 2024, the estimate is that the base rate will drop to 10% per annum. For the end of 2025 and 2026, the forecast is for Selic at 9% per year and 8.75% per year, respectively.

The Selic threshold is reason for disagreement between the federal government and the Central Bank. When the Copom raises the basic interest rate, the purpose is to contain heated demand, and this affects prices because higher interest rates make credit more expensive and stimulate savings. Thus, higher rates can also make it harder for the economy to expand.

When the Copom decreases the Selic, the tendency is for credit to become cheaper, with incentives for production and consumption, reducing control over inflation and stimulating economic activity.

The expectation for the dollar exchange rate is R$ 5.20 for the end of this year. By the end of 2024, the forecast is that the US currency will remain at R$ 5.25.